The authors are the members of a Working Party which was set up by the Councils of the Faculty and the Institute and whose terms of reference included the following:

1. To consider appropriate methods of valuation for individual investment-linked contracts having regard, inter alia, to the proposed rules for valuing long-term business liabilities.

2. To recommend revisions to the proposed rules or interpretations, as appropriate, to cope with the special problems of investment-linked business.

This paper presents the results of their investigations and includes consideration of the Returns to be made to the Department of Trade.

The paper deals with the problem caused by inflation in pension scheme funding. It considers the question of whether or not it makes sense to fund in advance in the inflationary conditions prevalent in the U.K. and U.S.A. in the post war period.

It goes on to consider how various methods of financing pension schemes cope with inflation. It identifies one of the main problems of advance funding as the way in which it has been used to deal with post retirement pension increases. The authors suggest a new approach.

The authors go on to suggest a consistent method of valuing final salary pension schemes. This method enables the actuary to use valuation assumptions which do not demand choosing an absolute level of salary increases or rate of inflation.